Capital is the second factor of credit analysis and is the amount of money invested to run a business. If the amount of capital is too low there is a fair chance the loan application will be rejected. There are two types of capital which have to be considered during credit analysis, first is working capital and the second equity capital. Working capital is the amount of capital required to cover the short term liabilities and the equity capital is the total amount invested by the owner in a business.
The amount of working capital determines whether the debtor would be able to repay the current amount of interest and principal amounts while the equity capital indicates the repayment of total liability.
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